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IAASB, PCAOB, CAQ seek ways to measure audit quality

Without concrete, objective ways to measure audit quality, it is
difficult to assess whether efforts to improve audits have been successful.

The International Auditing and Assurance Standards Board (IAASB),
one of many organizations attempting to tackle this challenge, has
issued a consultation
paper, A Framework for Audit Quality, that it hopes will
generate discussion and actions that will improve audits.

Objectives of the framework include:

Raising awareness of the key elements of audit quality.

Encouraging exploration of ways to improve audit quality.

Facilitating more dialogue on the topic.

The goal of the project is to create a framework that will
describe the input and output factors that contribute to audit quality
at the engagement, audit firm, and national levels.

As proposed, the framework describes inputs, outputs, interactions,
and contextual factors that the IAASB believes can increase the
likelihood of quality audits being consistently performed. A quality
audit is likely to be achieved, according to the consultation paper,
when the auditor’s opinion on the financial statements was based on
sufficient, appropriate evidence obtained by an engagement team that:

Exhibited appropriate values, ethics, and attitudes.

Was knowledgeable and experienced and had enough time to perform
the audit.

Applied a rigorous audit process and quality-control procedures.

Provided valuable and timely reports.

Interacted appropriately with a variety of stakeholders.

“Many factors contribute to increasing the likelihood of quality
audits being consistently performed,” IAASB Chairman Arnold Schilder
said in the foreword to the consultation paper. “The IAASB believes
there is value in describing these factors and thereby encouraging
audit firms and other stakeholders to challenge themselves about
whether there is more that they can do to increase audit quality in
their particular environments.”

The IAASB, which requests comments on the framework proposal by May
15, is not the only organization attempting to define audit quality.
The Department of the Treasury’s Advisory Committee on the Auditing
Profession has recommended that the PCAOB study the feasibility of
developing key indicators of audit quality and effectiveness. One of
the PCAOB’s priorities this year is to identify audit quality
indicators, and the board has a long-term goal of tracking and
reporting on those measures for domestic global network firms.

“Due to the multidimensional nature of audit quality, a ‘balanced
scorecard’ approach with various indicators and measures likely will
be necessary,” PCAOB member Jeanette Franzel said in a speech last week.

The Center for Audit Quality (CAQ), which is affiliated with the
AICPA, also has a project under way to look at the definition,
indicators, and measurements of audit quality. The first phase of the
multiyear effort is expected to finish at the end of this year. The
CAQ expects the first phase to seek to identify a handful of audit
quality indicators that could be monitored and reported on a
professionwide level.

The CAQ plans to seek perspectives of many stakeholders and hopes to
coordinate with the IAASB and the PCAOB on their projects.

Franzel said the PCAOB’s project will be a significant development
in advancing the quality and reliability of audits. Schilder hopes the
IAASB’s framework project will have similar results.

“Recent financial conditions have highlighted the crucial importance
of credible, high-quality financial reporting in all sectors of the
world economy, including the capital markets, small companies,
not-for-profit and government organizations,” Schilder said in the
foreword to the paper. “They have also reinforced the need, in the
public interest, for continual improvement to audit quality.”

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